Here's Why There Is A Good Chance KB Home Will Crush Earnings Estimates On Friday

Summary

The previous housing starts economic indicator data revealed that new home starts came in about 50,000 homes fewer than expected.

This quarter Wall Street is expecting KB Home to report a significant increase in FQ2 EPS and for a 4% boost in year over years sales.

This quarter the buy-side as represented by the Estimize.com community is expecting KB Home to beat the Wall Street consensus on the top and bottom line by a moderate margin.

KB Home (KBH) is set to report FQ2 2014 earnings before the market opens on Friday, June 27th. KB Home is an American home building company. The previous housing starts economic indicator data revealed that new home starts came in about 50,000 homes fewer than expected. However, the previous period reported in May came in well above expectations. This quarter Wall Street is expecting KB Home to report a significant increase in FQ2 EPS and for a 4% boost in year over years sales. Here’s what investors are expecting from KB Home on Friday.

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The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

The current Wall Street consensus expectation is for KB Homes to report 21c EPS and $547.64M revenue, while the current Estimize.com consensus from Buy Side and Independent contributing analysts is 23c EPS and $564.36M in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting KB Home to beat the Wall Street consensus on the top and bottom line by a moderate margin.

Over the previous 5 quarters for which data is available the consensus from Estimize.com has been more accurate than Wall Street in forecasting KB Home’s EPS in each quarter and has been more accurate in predicting revenue 3 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time.

More importantly it does a better job of representing the market’s actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. Here we are seeing a moderate differential between the two groups’ expectations compared to previous quarters.

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The distribution of earnings estimates published by analysts on the Estimize.com platform range from 20c to 27c per share and from $540.48M to $608.00M in revenues. This quarter we’re seeing an average range of estimates on KB Home compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wide range of earnings estimates signals less agreement in the market, which could mean greater volatility post earnings.

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Over the past 3 months the Wall Street earnings consensus rose from 19c to 21c, while the Estimize consensus started and ended the period at 23c. Meanwhile, the Wall Street revenue forecast climbed from $521.05M to $547.64M, while the Estimize sales consensus dipped from $568.60M to $564.36M. Timeliness is correlated with accuracy and the directionality of analyst revisions at the end of the quarter are often a leading indicator. In this case we see a lite decline in consensus at the end of the quarter which can be a bearish indicator.

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Among the analysts with at least 2 estimates scored on KB Home, ZachLehner has been the most accurate with an average of 14.00 points per estimate. ZachLehner is an independent financial research professional who is ranked 6th overall among over 4,550 contributing analysts. This season, ZachLehner has been more accurate than Wall Street in forecasting EPS and revenue an impressive 63% and 57% of the time respectively throughout 30 estimates.

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On Friday the Estimize community expects KB Home to report a significantly better quarter than Wall Street is looking for. Housing starts data has been up and down, but on Thursday rival Lennar Corp. posted great quarterly results, signaling a strong home building industry. This quarter contributing analysts on the Estimize.com platform are forecasting that KB Home will beat the Wall Street consensus by 2c per share in earnings and nearly $17 million in sales.